Secrets of Real Estate Negotiations : How Discounting Notes Equals Big Profits

February 11, 2008 | By | 1 Reply More

Secrets of Real Estate Negotiations : How Discounting Notes Equals Big ProfitsAbout a year ago, we were contacted by a man who had a house he wanted to sell quickly. The seller had inherited the house and owned it free and clear. He had listed the property for a few months at $850,000 the prior year with no luck. He had gotten himself in a position where he wanted out fast and was willing to take a discount.

After Dusty worked his magic negotiating with the owner, we had the property under contract. Our purchase price was $550,000. But that’s not all! You’ve got to remember that price is only one component to any deal. The agreed upon terms were that the seller would get $200,000 at closing and a note for $350,000. He was to receive payments of $25,000 every six months until the loan was paid in full (and YES, that’s a zero percent loan).

Fours months went by; the previous seller found himself in a bind and accepted an early payment of $15,000 as payment in full for the first $25,000 payment we owed him. Not bad. We got a $10,000 discount.

It wasn’t two months later that he was calling again. The total balance that we owed the seller now was $325,000, and he wanted more money. Too bad his next payment wasn’t for about seven months. We were fine with the already agreed upon payment schedule. He, on the contrary, was not.

After about two weeks of going back and forth, we struck a deal. And what a deal it was! We agreed to give him $10,000 that day, an additional $10,000 two weeks later, and a final payment of $130,000 due in ninety days.

So what do all those #’s mean? The seller’s original note was for $350,000. After discounting his note a couple times, the total we paid him was $165,000. That’s an $185,000 Dollar Discount! And that was all after we bought the house.

Anytime you can get a seller to take back financing for a portion of their equity, do it! It’s less money that you have to come to closing with, and you can structure the payment terms

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Category: Negotiating, Real Estate Investment Financing Strategies

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  1. Tim says:

    that is what I call “using your head”!

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